[Federal Register Volume 68, Number 81 (Monday, April 28, 2003)]
[Notices]
[Pages 22433-22434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47713; File No. SR-FICC-2003-02]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Cross-Guaranty Agreements to Which FICC Is a Party

April 21, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 8, 2003, the Fixed 
Income Clearing Corporation (``FICC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in items I, II, and III below, which items have been prepared 
primarily by FICC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change relates to cross-guaranty agreements to 
which FICC is a party.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FICC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
item IV below. FICC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\2\
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    \2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    FICC is proposing to amend the rules (``Rules'') of its Government 
Securities Division and Mortgage Backed Securities Division 
(``Divisions'') to make clear that, in the event that an entity that is 
a member of both Divisions becomes a defaulting member as defined in a 
cross-guaranty agreement to which FICC is a party and FICC chooses to 
participate in the arrangement, FICC will first offset the liquidation 
results of the Divisions prior to presenting its available net 
resources to other participating clearing corporations.
    FICC's Rules provide that FICC may enter into cross-guaranty 
agreements. Cross-guaranty agreements are an important risk protection 
measure for clearing agencies. Generally, these agreements contain a 
guaranty from one clearing agency to another clearing agency that can 
be invoked in the event of the default of a common member. The guaranty 
generally provides that the excess resources of a defaulting common 
member remaining after the defaulting common member's obligations to 
the guaranteeing clearing agency have been satisfied will be used to 
satisfy the obligations of the defaulting common member that remain 
unsatisfied at the other clearing agency. The Multilateral Agreement 
provides for the allocation of such excess resources among all clearing 
corporations in a deficit position with respect to a defaulting common 
member.
    If a clearing corporation that is a party to the multilateral 
cross-guaranty agreement \3\ suspends a person or declares a person 
insolvent pursuant to its rules and if such person is a common member 
of two or more clearing agencies, such clearing agency must give each 
other clearing agency a notice that it has ceased to act for the member 
and that it will participate in the arrangement. Each participating 
clearing agency has a certain amount of time pursuant to the 
multilateral cross-guaranty agreement to determine its ``available net 
resources,'' which is the sum, positive or negative, derived after the 
application of any applicable liquidation procedures by adding the 
amounts owed by the participating clearing agency to the defaulting 
member and subtracting the amounts owed by the defaulting member to the 
participating clearing agency.
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    \3\ FICC's predecessors, the Government Securities Clearing 
Corporation (``GSCC'') and the MBS Clearing Corporation (``MBSCC''), 
filed rule filings in 2001 to enter into a multilateral cross-
guaranty agreement with The Depository Trust Company, National 
Securities Clearing Corporation, Emerging Markets Clearing 
Corporation, and The Options Clearing Corporation (``Multilateral 
Cross-Guaranty Agreement'') and to make incidental rule changes. 
Securities Exchange Act Release No. 45868 (May 2, 2002), 67 FR 31394 
[File Nos. SR-DTC-2000-21, SR-OCC-2001-01, SR-NSCC-2001-13, SR-EMCC-
2001-02, SR-GSCC-2001-12, and SR-MBSCC-2001-03]. Prior to that time, 
GSCC and MBSCC were parties to various bilateral cross-guaranty 
arrangements, which were terminated when the parties entered into 
the multilateral cross-guaranty agreement.
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    FICC desires to make clear in its rules that it will first offset 
the available net resources of each of its Divisions and

[[Page 22434]]

then present that net amount as its ``available net resources'' for 
participation with the other clearing agencies. FICC believes that it 
already has the authority in its rules to do so because the rules 
provide that it may enter into cross-guaranty agreements and thus 
follow their provisions.\4\ However, FICC believes that it is prudent 
to make this explicit in its rules for the avoidance of any doubt. The 
proposed offset is consistent with the rationale for combining GSCC and 
MBSCC into FICC because it further optimizes the consolidation of risk 
management processes.
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    \4\ The parties have amended the multilateral cross-guaranty 
agreement to reflect the merger of GSCC and MBSCC and the resulting 
FICC, as well as to reflect the offset between the Divisions of 
FICC, that is the subject of this rule filing. The offset between 
the Divisions of FICC is similar to the offset between DTC and its 
Mortgage-Backed Securities Division (which no longer exists) that 
was contained in the version of the multilateral cross-guaranty 
agreement and was included in the rule filings the Commission 
approved.
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    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because it clarifies FICC's rules and further optimizes the 
synergies created by the combination of GSCC and MBSCC into FICC.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    FICC does not believe that the proposed rule change would have an 
impact on or impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not yet 
been solicited nor received. FICC will notify the Commission of any 
written comments received by FICC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(i) of the Act \5\ and rule 19b-4(f)(1) \6\ thereunder 
because it constitutes a stated policy, practice, or interpretation 
with respect to the meaning, enforcement, or administration of an 
existing rule. At any time within sixty days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \5\ 15 U.S.C. 78s(b)(3)(A)(i).
    \6\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-FICC-2003-02. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. Copies of the submission, all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Section, 450 Fifth Street NW., Washington, DC 20549. Copies 
of such filing will also be available for inspection and copying at the 
principal office of FICC. All submissions should refer to the File No. 
SR-FICC-2003-02 and should be submitted by May 19, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-10381 Filed 4-25-03; 8:45 am]
BILLING CODE 8010-01-P